Bonds News

UPDATE 1-Hungary govt eyes new IMF/EU deal - PM aide

* Hungary’s current IMF/EU deal expires in October

* Govt may extend deal until Dec, have new deal for 2011 (Adds more comments, details)

BUDAPEST, June 17 (Reuters) - Hungary’s new government will start negotiations in July with the International Monetary Fund and EU about a new loan agreement, a chief aide to the prime minister told television M1 on Thursday.

Hungary secured a $25.1 billion financing deal with the IMF, the European Union and the World Bank in October 2008 to avert a meltdown amid a market crisis. The agreement will expire in October.

When asked if there would be a new agreement with lenders, Gyprgy Szapary, chief aide to Prime Minister Viktor Orban, said:

“I hope there will be (an agreement)...The delegations (of IMF and EU) will come here in early July; we will sit down to negotiate then so that there can be a new agreement.”

“We are thinking about possibly extending (the current aid deal) until December so that there is no break in the programme, because we think that potentially we could get another agreement for 2011,” Szapary added.

He said Hungary did not plan to draw down the currently available tranches of the existing loan for now, but said the funds may have to be used if the global sentiment turns unfavourable.

“For the time being the decision is that we will not drawn down the remaining amount...but there may be a scenario later under which these funds need to be used as something may happen in the global economy which could force Hungary to draw down the remaining part of the loan,” Szapary said.

The state has so far drawn about 12.8 billion euros from the credit facility secured in 2008, but some of these funds have not been spent. The central bank has called down 1.4 billion euros from the package, placing it in its reserves.

Hungary still has access to a further financing of about 5 billion euros from the original facility, pending agreement with lenders at the next loan programme review.

The country has not drawn fresh funds from the IMF/EU this year as last year it successfully returned to market financing after the previous Socialist government stabilised finances with spending cuts and regained investors’ confidence.

Hungary, which has a new centre-right government since April elections, had a budget deficit of 4 percent of gross domestic product last year and targets a 3.8 percent deficit in 2010.

The country’s public debt at around 80 percent of GDP is still the highest in central Europe.

Earlier this month, highly confusing comments from some Hungarian government officials drawing comparisons between Hungary and debt-laden Greece triggered a selloff in the forint currency EURHUF=D2 and global financial markets.

The government announced a quick set of measures and pledged to meet the deficit target which has calmed markets, but analysts warned that implementation risks remain, especially linked to a planned big new tariff on the financial sector.

For analysis on Hungary’s govt pls see [ID:nLDE65F1SB]

For a factbox on Hungary’s debts [ID:nLDE65509Z]

For analysis on Hungary economy [ID:nLDE65924H]

Reporting by Marton Dunai; Editing by Kim Coghill